High volatility in the United States stock market due to rising inflationary pressures and general price levels amid geopolitical tensions has resulted in modest gains in benchmark indexes and fluctuating share prices of most companies. The S&P 500 index and Nasdaq Composite have declined 0.7% and 1.4%, respectively, over the past five days. And the CBOE Volatility Index, which gauges market volatility and sentiment, has increased 10.8% over the same period.
However, the United States’ long term growth outlook remains favorable, driven by impressive job growth and proposed fiscal stimulus packages. Consequently, insiders are scooping up the shares of Energy Transfer LP (ET) and Patrick Industries, Inc. (PATK) because the companies are likely to grow in tandem with the economy. While rising oil prices should drive ET, PATK is expected to benefit from increasing manufacturing and industrial activities.
Owning shares of the company for which they work is considered a strong motivation for executives to ensure the company performs to the best of its ability. Similarly, an increase in insider buying is perceived as positive for a stock ideally because managers and top executives have intimate details of a company’s operations, business expansion and order flows that could be unknown to analysts and investors. So, substantial insider buying at a company could be an indication of its solid growth potential.
So, we think, ET and PATK, which witnessed significant insider buying over the past month, should at least be worth watching.
Energy Transfer LP (ET)
ET is an energy assets company that operates as a transporter and refiner of natural gas. It also provides storage facilities. The company’s customers include independent power plants, local distributors and end-use industrial users. Its business segments include Interstate and Intrastate Transportation and Storage.
The master limited partnership (MLP) is known for its high dividend and earnings yields. ET’s 5.83% forward dividend yield is 49.9% higher than the 3.89% industry average. Also, the company’s 20.04% non-GAAP forward earnings yield is 175% higher than the 7.28% industry average. The tax benefits of investing in MLPs have driven insiders to scoop up shares of ET. Of the 26 insider trades conducted over the past 12 months, 20 have been open market buys. Approximately 2.78 million shares of ET have been bought by insiders in the trailing 12 months. In May, an ET director, Ray W. Washburne, bought 200,000 shares, while a company officer, Bradford Whitehurst, purchased 5,000 shares. 14.3% of ET’s outstanding shares are owned by insiders. The stock has gained 21.6% over the past month, and 69.4% year-to-date.
ET’s revenues increased 46.2% year-over-year to $17 billion in the first quarter, ended March 31, 2021. Its operating income came in at $4.07 billion, up 6,570.5% from the same period last year. Its net income and EPS stood at $3.64 billion and $1.21, respectively, representing a substantial improvement from the negative year-ago values.
A $61.63 billion consensus revenue estimate for 2021 indicates a 58.2% improvement year-over-year. Analysts expect the company’s EPS to rise 866.7% from the same period last year to $1.84 in the current year.
ET has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth and Value, and B for Sentiment. Of the 94 stocks in the Energy – Oil & Gas industry, ET is ranked #13.
In addition to the grades we’ve highlighted, check out ET Ratings for Quality, Stability and Momentum here.
Patrick Industries, Inc. (PATK)
PATK manufactures and sells industrial building components across the United States and Canada. Its finished products have applications in the recreational vehicle and manufactured housing and industrial markets. The company operates through two segments–Manufacturing and Distribution.
Over the last 12 months, there have been 16 open market buys of PATK shares by company insiders. Approximately 178, 314 shares of the company have been bought. On May 26, a PATK Director, Pamela Klyn, bought 1000 shares. In the same month, officers Kip Ellis and Jeff Rodino obtained 11,184 shares and 15,414 shares, respectively, by executing warrant options.
The fast-paced economic revival is considered the driver of the insider share purchases at the company. The Manufacturing Purchasing Managers Index (PMI) came in at 61.2% in May, up 50 basis points sequentially. The New Orders Index rose 2.7% sequentially to 67% in the last month. The domestic manufacturing industry is likely to grow further in the coming months, driven by proposed federal infrastructure spending packages and rising consumer spending. Because PATK is expected to grow as the manufacturing and industrial activity volume rises, insiders have been increasing their holdings substantially.
For the fiscal first quarter, ended March 28, 2021, PATK’s revenues increased 44% year-over-year to $850.50 million. Its operating income stood at $68.50 million, representing a 74% rise from the year-ago value. Its net income and EPS improved 124% from the prior year quarter to $47.50 million and $2.04, respectively. Its operating cash flows increased 281% from the same period last year to $50.30 million.
The Street expects PATK’s revenues to rise 106.6% year-over-year to $876.13 million in the current quarter (ending June 2021). The company’s EPS is expected to be $1.84 in the current quarter, indicating a 6,033.3% rise from the prior year quarter. PATK has an impressive earnings surprise history as well; it surpassed the consensus EPS estimates in each of the trailing four quarters. 6.13% of PATK’s 23.77 million outstanding shares are held by insiders.
PATK has gained 61.2% over the past year, and 25.7% year-to-date to close yesterday’s trading session at $85.88.
It’s no surprise that PATK has an overall rating of B, translation to Buy in our proprietary rating system. It has a grade of B for Momentum, Growth and Sentiment. Furthermore, PATK is ranked #19 of 45 stocks in the A-rated Industrial – Manufacturing group.
We have also rated PATK for Value, Quality and Stability. Get all PATK Ratings here.
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ET shares were trading at $10.54 per share on Thursday afternoon, up $0.07 (+0.67%). Year-to-date, ET has gained 77.26%, versus a 12.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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